This week we're looking at how America compares to the rest of the world around issues of debt, college spending, retirement savings, and more.
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This video was recorded on Feb. 11, 2020.
Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick and I'm joined, as always, by Monsieur Brokamp...
Robert Brokamp: Ooh, oui, oui.
Southwick: ...personal finance expert, here, at The Motley Fool. Hi, Bro, how are you?
Brokamp: Just fine. How are you? Are you doing OK over there? You were struggling with that water, weren't you?
Southwick: Just a little bit. In this week's episode, we're going to see how big financial issues in America -- like the cost of college debt, retirement savings -- look in other countries. All that, and more, on this week's episode of Motley Fool Answers.
Brokamp: So, Alison, what's up?
Southwick: Well, I'll tell you what's up. I have got such a travel bug in me right now. I am just dying to book tons of travel and go somewhere, and I think it's just how you feel in winter in February after all the holidays that have died down. So I thought, "What are some of the best places to retire, internationally?" This show has an international flavor to it. I did some very extensive internet searches and researched this for at least 30 minutes today.
Brokamp: Good for you.
Southwick: It's been a tough week. I'll be honest. The show did not take priority from other things I was doing, but this is how the pasta gets made. Or sausage. Clearly, I'm also hungry.
Let's start. Investopedia looked at the cost-of-living index and the Global Peace Index to determine the cheapest and safest places to retire -- so if not spending a lot of money and not getting stabbed is high on your list of retirement goals, then let me count down the top three.
No. 3 was the Czech Republic. And if you want to do this, get in now, because at this time the Czech Republic only has about 6,000 American expats there at the moment. It turns out the Czech Republic is very safe and pretty cheap to live in.
Brokamp: And beautiful. Absolutely beautiful.
Southwick: I've never been. I would love to go. They have a lot of castles, apparently.
Brokamp: Mm-hmm. Prague is beautiful, but even some of the outlying...Karlovy Vary, which is a spa town, is gorgeous.
Southwick: All right, the segment's done. We decided that we're going to the Czech Republic. The point is if you want to go, now's the time to think about doing it, because not many people have thought about it yet.
No. 2 is Australia. Investopedia suggests that you can retire on $200,000 in savings and Social Security in Australia because of the cost of living, although I'm pretty sure that anyone who is listening to this in Sydney just spat their flat white out in surprise, because I think maybe they were thinking, "Yes, Australia, if you're going to live way out in the bush and not in a town." [Editor's note: For "town," read "big city."]
Rick Engdahl: Australia is kind of a big place. That's a bold claim, there.
Southwick: I know, right?
So the No. 1 place that is cheap and safe to retire is Austria. Dubbed "the Swiss alternative," Austria offers the beauty of Switzerland, an excellent infrastructure, and a high living standard, but at a price that's easier on the budget. You get Switzerland at Austrian prices.
Brokamp: Especially for you fans of The Sound of Music, Salzburg is beautiful.
Engdahl: You can save money by making clothes out of curtains.
Brokamp: That's right. There we go. Another Sound of Music reference.
Southwick: Topical! Well, what if you're flush with money because you invested so wisely with The Motley Fool's advice? Well, U.S. News & World Report put together their list of where affluent people should consider retiring abroad.
No. 3: Why settle for Austria when you can have...Switzerland? Yes, the real thing came in at No. 3 because of its favorable taxes, neutrality, and all that other good Swiss-y stuff.
No. 2 was, interestingly enough on their list, Australia, because apparently it has everything. It's a place for affluent people and the cash-strapped. In this case U.S. News was focusing more on the cities, and how nice it is to live in Australia. I told you this was not a lot of tough research that was done, I don't think, on anyone's part -- either mine or who I'm citing.
Engdahl: Australia is a really big place.
Southwick: We've got options.
And the No. 1 place [where] U.S. News & World Report said that affluent people should consider retiring from America -- for the fourth consecutive year -- is New Zealand. Came in at No. 1 for a comfortable retirement. I've never been. You've been, Rick, right?
Engdahl: No, but it's at the top of my bucket list.
Southwick: Well, end there. It could be where you kick the bucket.
Well, what about the best overall place to retire? International Living Magazine compiled their annual list based on the journalists and editors that they have on the ground in international countries and what they have to say.
No. 3 is Costa Rica, which is also known -- and I'm not making this up -- as "the Switzerland of Central America." I don't know what everyone's feeling with Switzerland, but it just kept coming up in my research. A couple can live comfortably on $2,000 a month in Costa Rica. Apparently Costa Ricans are very nice people. There's lots of activities and a lovely climate.
I've been to Costa Rica, so here's a good piece of advice I got about traveling around Costa Rica; maybe it applies to the rest of the world. Yes, Costa Ricans are nice people, but you can judge the friendliness of a town by how friendly their stray dogs are. If you enter a town and the stray dogs are not friendly, then you should move on to another town in Costa Rica.
Brokamp: I never heard that before.
Southwick: Makes sense though, right? It's like if the dogs are mean and scared, then it's probably because the people around them aren't being nice to them.
Brokamp: Don't they also have monkeys running around in Costa Rica?
Southwick: Yes, howler monkeys. We heard howler monkeys when we visited. Is that top on your list? Do I need to make a list of the top countries to retire that have monkeys?
Brokamp: We're actually thinking of going there, so that's one of the things my kids said: "What? We get to go to a place where there are monkeys running around?" So it's a selling point.
Southwick: And there's a volcano. We saw lava -- insane. Costa Rica is great.
No. 2 from International Living's list of the best places to retire is Panama. Panama won last year, overall, but this year it's in second place. Just three hours by plane from Miami. You can rent an ocean-view condo for as little as $1,500 a month in the cosmopolitan city of Panama City. Healthcare there is solid, and their pensionado program of discounts is made available to retirees, and it means you get 25% off your energy bills, airline tickets, and lots of other stuff. So, Panama: I've never thought about going to Panama.
Brokamp: And it's a good thing you bring up healthcare, because this is an emerging trend, where people retire overseas because you can live a very decent lifestyle at a much lower cost than what you'd have in the U.S.. But it's important to know that Medicare does not cover any sort of healthcare services outside of the U.S. Now in places like Panama, the healthcare is so cheap that you're still fine, but just know that if you have major surgery, a lot of times people have to fly back to the U.S. if they want it covered by Medicare.
Southwick: And the No. 1 place to retire, according to International Living, is Portugal. A dear friend of ours, here at The Fool, just retired to Portugal. Good old Peter.
I will say their methodology, here: They only looked at 24 countries and this website really has a thing for Portugal. Why did they pick Portugal as the No. 1 place to retire? Well, they say it's very affordable. The climate is delightful. Healthcare is good. Food is good. History. Tons of things to do. It's all great. But they said the best part is the people, because they're very welcoming to foreigners and it's a great place to make friends. It's the third-safest country in the world, the second-cheapest in Europe, and a couple can live a comfortable lifestyle for about $2,500 a month. More if you're living in the city, but there you go.
Those were some of the places I found for us to consider retirement. Are you excited?
Brokamp: I am excited. There's lots of people who live very exciting retirements on less than $30,000 a year by living all over the world.
Southwick: Let's be some of them. Rick's on board.
Engdahl: Are we going to retire the podcast? Just move off to Portugal and broadcast from there?
Southwick: Yes, but the topic is just going to be about monkeys. And that, Bro, is what's up.
Brokamp: Dedicated listeners will remember that last week we took a look at the finances of the average American, but here's a news flash for you! America is not the only country in the world. In fact, U.S. residents only make up 4% of the globe's population.
Southwick: But 90% of it's hot air. Right? Americans like to talk.
Brokamp: Something like that.
Southwick: I love being an American, though.
Brokamp: Yeah, God bless us all and all, or something like that. Anyway, there are actually 195 countries. Two of them are considered semi-countries -- one of them Palestine and one the Holy See, known as the Vatican. There are 195 other countries, so I took a look and tried to see what financial data I could find on how the rest of the world looks. [Editor's note: The United Nations recognizes 195 countries; 193 are U.N. members, and Palestine and the Holy See are observer states. Some authorities include Taiwan and Kosovo, for a total of 197.]
A couple of disclaimers, here. The information is often conflicting, and many of the studies and reports that I read did not include information for all 195 countries, partially because for a lot of countries, the economic data is not very clear. But I did find some good reports, so let's dig into it, starting with income.
I got this data from WorldData.info. Last week we pointed out that the median income for a U.S. household is $63,000. Where does that put us, compared to the rest of the world?
Well, of the top 10, No. 1 is Monaco, with a median income of $186,000. Then Liechtenstein at $116,000 and Bermuda at $106,000. Then it goes Switzerland, Norway, Macao, Luxembourg, Iceland. The United States comes in at No. 9, and then rounding out No. 10 is Ireland at $61,000.
The bottom 10 -- this list only had 77 countries, so not all the countries were on it -- [included] the Democratic Republic of Congo with an annual household income of $490. Then Madagascar, Afghanistan, Ethiopia, Cambodia, Pakistan, Kenya, Bangladesh, Nigeria, and this one surprised me: No. 10 is India, with an average household income of just $2,000.
Because this has been in the news recently, I thought I'd mention that No. 12 is Ukraine with a median income of $2,600, which I thought was interesting. I didn't realize it was as poor as it is. Maybe we can get a little more appreciation of why aid from the United States is so important to them. One country that was not on this list that I'm sure would be toward the bottom, if not at the very bottom, is Haiti. Another source found that the average household income in Haiti per year is $450.
What's the median if you look right at the middle? According to this list, it's actually Poland. The median household income was $14,000. That gives you an idea of how good we have it in the United States.
That's how much people are making. How much are people saving? A lot of data on how the rest of the world does, I got from the Organisation for Economic Co-operation and Development, otherwise known as the OECD. The countries with the top 10 savings rates: No. 1, by far, is China with an average savings rate of 47%. No. 2 was Chile, coming in at 21%, and then it goes down to Norway, Korea, Russia, Brazil, Switzerland, Denmark, Israel, and Sweden at 12%. As you may recall from last week, the U.S. is around 5% to 7%. These days it's actually up to over 7%, but just a few years ago it was down to 5%.
I did look into why the savings rate in China is so high. One report I found chalked it up to, at least partially, the one-child policy that was in effect [from] the late '70s to 2015. Essentially because they only had one kid, they had a lot of money to save, but also in China you rely on your kids to help you in retirement. If you didn't have as many kids, chances are your kids would maybe be with their spouse's family, so you had the incentive to save more. The one-child policy went away in 2015 and, indeed, the savings rate in China, as well as across all of Asia, is starting to come down.
Brokamp: So who has the worst savings rates? At the bottom, at least according to this report, is Greece with a savings rate of negative 7.5%. Portugal and Latvia also have negative savings rates. The United Kingdom comes in at No. 4 with a savings rate of 0.1%.
And then Italy has a savings rate of 1.2%. I suppose many of these people are planning to rely on the social services and, as we'll talk about later, certainly many countries have bigger social retirement safety nets, or at least bigger pension plans. But goodness gracious, if your savings rate is a negative 7.5%....
Let's move on to net worth. This information comes from the "Global Wealth Report 2019" from Credit Suisse, which releases this every year, and these years are as of the middle of 2019, so relatively updated.
The big thing about this is, there's a big difference between median net worth -- which is where half the people have more and half the people have less -- and average, because, as we'll discuss, throughout the world there's big wealth disparity. It's bigger in the U.S. than most other places, but throughout the world there's a big wealth disparity.
Let's start with: The average wealth per adult in the world is $70,850; however, the median is only $7,000. In other words, if you have a net worth of $7,000, you have more than half of the other adults in the world. If you have a net worth of $109,000, that puts you in the top 10% of the globe, and if you have a net worth of almost $1 million, you're in the top 1%.
Where does the U.S. fall on this? The median net worth of an adult is $65,000. What's No. 1? Switzerland at $227,891. And then Australia, Japan, Canada, the United Kingdom, on down. The bottom ones, at least according to this list -- and again, it doesn't have all countries -- starts with Indonesia with a median net worth of $1,977.
Moving on to millionaires, the United States accounts for 40% of the millionaires in the world, and 40% of the people in the top 1% of global wealth distribution. So the number of millionaires in the United States, halfway through 2019, is 18.6 million millionaires. No. 2 is China at 4.4 million. So we've got a lot of millionaires here in the United States.
In terms of concentration of wealth, the United States, again, is up there; it's No. 4 among the major developed countries. The top 1% owned about 35% of the country's wealth. The worst is Russia: The top 1% owned almost 60% of Russia's wealth. The actual median net worth of someone in Russia is only $3,683. So, a huge wealth concentration in Russia.
And just a couple of other stats from the report. Their estimate suggests that the lower half of the global population collectively owns less than 1% of global wealth. The richest 10% own 82% of all wealth.
Let's move on to college. Last week we talked about the average costs of college here in the United States -- anywhere from $21,950 if you're going [to an] in-state public school [for] four years -- that much per year -- up to private, where it's almost $50,000 a year.
Where does U.S. tuition compare to the rest of the world? Again, according to another OECD report, where does our tuition fall? Only the United Kingdom charges more for tuition. Every other country charges [less]. One-third of developed countries don't charge anything for tuition, and one-third of them charge less than $3,000.
One question, of course, is: Why is this? No. 1, fewer of our taxes go to paying for college educations. That's No. 1. To a certain degree, we have to pay for it in one way. Other countries are paying for it; they're just paying for it with their taxes. But also -- and I learned this from an article in The Atlantic entitled "Why Is College in America So Expensive?" by Amanda Ripley -- she had a couple of interesting points.
First of all, the U.S. ranks No. 1 in spending on student welfare services, such as housing, bills, healthcare, and stuff like that. In the rest of the world, less people live in dorms, so you have more people working from home or living in other situations. They're not living in dorms.
And the U.S. is the only country, besides Luxembourg, where there are more people working at the university who are not teachers. In other words, in every other country the majority of the workforce are actually teaching the students, and in the U.S. it's more administrative, marketing, admissions, and that type of thing.
There's two more categories, here. One is debt. How does the United States compare to the rest of the world in terms of debt? Well, we like to borrow money. There are not that many countries, in fact only Canada comes as close as we do, in terms of how much we borrow. Only 25.5% of Italian households have any debt. In France and Germany it's less than 50%.
The No. 1 most common form of debt in the U.S. and around the world is credit cards. In Canada 82% of people who are 15 or older have a credit card. In the U.S. it's 65%, although if you look at other stats, it's actually much higher than that. A lot of other countries are not that fond of using credit cards. Only 40% of adults have credit cards in France. In China and Russia it's only 20%. In Saudi Arabia only 16%.
A lot of other countries are more interested in using cash. For example, in Germany 75% of all transactions are paid for in cash, not in debt. Germans generally don't like debt. If you look at mortgages in developed countries around the world, most are similar to the U.S. in that about two-thirds of people have a mortgage and about one-third own their home outright. In Germany something like 40% of people have a mortgage. Paying off the debt is pretty important to them.
And finally we come to retirement. It was very difficult to try to compare retirement in the U.S. to other countries, because other countries have different systems. Not every country even has anything like a savings account like a 401(k) or, as they call it in New Zealand, the KiwiSaver. Other countries have much more robust pension systems.
A couple of interesting things I noticed, looking at other countries. I first started looking at the average age of retirement in other countries. Most of the studies I looked at defined average age as when you're able to get a country's most prominent retirement system, which in the U.S. is Social Security. There are pensions and other things like that.
And in the U.S. you can collect a full benefit at 66. You can claim it as early as 62 or delay it as late as 70, but if you claim it at 66 you'll get the full benefit. When you look across other countries, the majority of them [can claim their benefit at a younger age] -- anywhere between 60 and 64 -- and in about half the countries, there are different ages for men and women. For women the age is younger.
However, what is happening now is like in the U.S., every other country is experiencing funding problems. Most of these pensions are not well-funded -- partially because of not enough money going in, but also partially because of how it's funded, returns on investments, and things like that.
What's happening, now, across many of the countries is the retirement age is going up, partially because people are living longer, which is putting a strain on the finances, but also because a lot of these programs are a lot more generous than what we have in the United States. If you were to look at the average replacement rate of Social Security, it replaces 40% to 49% of your working wage. Many programs replace up to 100%. In fact, in France people who are 65 and older actually have higher incomes than people who are working, and a lot of these people are figuring that it's unsustainable.
The problem is when they have tried to change it, what happened in France also happened in Russia. The retirement age in Russia is like 58. They tried to move it up and there were huge protests. So things are gradually moving up, and what many countries are doing is tying that retirement age to life expectancy -- which to me makes total sense. And I assume at some point, we in the U.S. have to do the same thing, where you have to wait later if we're all going to be living longer.
That's it. That's how the rest of the world looks according to the U.S. I was looking at all of it and thinking on the one hand, we in the U.S. have some struggles. We have to pay more for college. Social Security does not cover as much. When you look at the 35 most developed countries, the U.S. is among seven where 1 in 5 people over the age of 65 are living in poverty, and that's because the Social Security system isn't as generous as other countries. On the other hand, when you look at our average net worth and our average income compared to the rest of the world, I think we should all feel pretty lucky.
Southwick: Bro, while you were talking -- and believe me, I was riveted -- there were a lot of numbers; I love it. I actually thought, "Let's look up and see how many listeners we have from different countries around the world." Predominantly our listeners are from America, because we talk about American stuff like 401(k)s and things like that. Do you want to guess how many [international] listeners we have? How many listeners from how many countries?
Southwick: One hundred thirty-seven. I just looked at one random episode and it was showing 137 different countries. For example, we have one listener in Mongolia. There's one download from Mongolia. We've got Gambia, Fiji, Moldova, Belarus, El Salvador; in all of these [countries] we have just one listener, but I don't know if it's people on vacation. Apparently we have one listener in Iran. I don't know how we know that, but we do.
Engdahl: I think these people owe us some postcards.
Southwick: Well, yes, I think that's true. I know this is about as exciting as listing popular names. We have two listeners in Mauritius, so they could get together and have a meetup. "Oh, you listen to The Motley Fool?" "Yes, I do." "Oh, me too." That's awesome. Just give a shout-out to our two listeners in Bangladesh. I see you.
All right, Bro. Thank you for taking us on this trip around the world. I would love to hear from our listeners, because I think we have a lot of listeners who've probably retired and are living an exciting time all over the world. I would love to hear your stories, so please drop us a line at Answers@Fool.com and let us know what exciting adventures you're doing on your retirement around the world.
And what do you think? Do you have a recommendation? Should we go to Portugal? I don't know. I don't think they have monkeys, so it might be off the list. And I also like the idea that you guys aren't pushing back on the idea that we're all retiring together. In this community we're going to start our own villages.
Brokamp: Sounds good to me!
Southwick: And more monkeys, though. That's the show. It's edited neutrally by Rick Engdahl. Again, our email is Answers@Fool.com. For Robert Brokamp, I'm Alison Southwick. Stay Foolish, everybody, no matter where you are in the world.